What Is the Home Price Index—And Why Should You Care?

Trends in home prices don’t just reflect the state of the real estate market; they also provide insight into the overall health of the economy. A tool that can provide insight into both is the House Price Index (HPI), published by the Federal Housing Finance Agency (FHFA) that tracks home prices across national and localized markets.

While most people do not check the HPI every day, it plays an important role behind the scenes, helping analysts and policymakers understand where the housing market has been and where it might be going.

Ahead, experienced mortgage lender Kate Reagan offers insights into the HPI and its economic impact.

What Is the Home Price Index?

Think of the HPI as a general performance review of the housing market’s health. Generated by the FHFA monthly and quarterly, it tracks broad movements in home sale prices in specific markets over time.

How Is the Home Price Index Calculated?

The FHFA regularly gathers information on repeat sales and refinancings of single-family homes bought with mortgages secured by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

Current prices are compared to past transactions dating back to 1975, when data collection first began. The result is a snapshot of home price trends across the country. “It is one of the indicators of pricing trends, but we ride the data as it goes. It summarizes what prices we have experienced,” Reagan says.

What Causes Home Price Index Fluctuations?

Housing inventory levels, interest rates, inflation, consumer confidence and government policies can all cause the HPI to fluctuate. Seasonal trends and natural disasters also have an impact.

The Most Reliable Home Price Index Reports

“The FHFA and the [S&P CoreLogic] Case-Schiller are the two biggest reports,” Reagan says. “They are the industry standards.” Both are reliable reports from reputable organizations with strong data and rigorous methodology. The Case-Schiller HPI follows all repeat sales of the same properties, regardless of payment type, unlike the FHFA HPI, which only tracks Fannie Mae and Freddie Mac mortgage sales.

What Are the Implications of the Price Index?

When home prices rise, this often provides a boost to the economy by encouraging consumer spending and increasing buyer confidence. As the HPI climbs, inflation often follows. In response, central banks raise interest rates to keep inflation in check. For homebuyers, this means higher mortgage rates and reduced purchasing power. In turn, this can put downward pressure on home prices, as sellers must account for tighter budgets and lower demand. Conversely, when interest rates are low, more buyers tend to enter the market, creating competition that can drive prices higher.

For individuals navigating the housing market, local data is often more valuable than following the HPI, which is mainly useful to market analysts and policymakers. Reagan recommends looking to local realtor association reports, which track monthly home sale volumes and prices, to better understand your market. “The HPI reflects broad trends, but a local community’s prices may look very different,” she says. “You want to see whether a house in your community resells for more or less than it did previously. That’s a clearer indicator of what’s happening in your area.”

FAQ

HPI vs. Median Home Price: What’s the Difference?

“The HPI shows whether prices are trending up or going down,” Reagan says, while the median home price is the middle point of all home sale prices in a specific area and time.

National vs. Local HPI: Which One Matters More?

Both local and national HPIs matter, but local HPI will matter more for typical home buyers and sellers as real estate markets are highly regional.

About the Expert

Kate Reagan is Branch Manager at Guild Mortgage Lender in Northampton, Massachusetts.

Sources

FHFA House Price Index Frequently Asked Questions

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